Ripping Apart the Guidelines

After five months, the wage-price standards are in deep trouble

The Carter Administration's wage-price guidelines were beset by a tide of woe last week. While the nation's long-haul trucking slowed drastically, representatives of the industry and the striking Teamsters remained unable to agree on a new contract that came near to meeting the Government's "voluntary" limit of 7% in annual wage and benefit increases. At the same time, a walkout by United Airlines machinists, who are also seeking a guideline-busting settlement, grounded all flights of the U.S.'s largest air carrier and forced the layoff of more than 13,000 pilots, attendants and other crew members.

Meanwhile, another shocker on prices provided further evidence that after just five months, the President's Stage II anti-inflation effort is flagging. In March wholesale prices zoomed 1%, or at a compounded, annual rate of 12.7%, the same as in February. Leading the price index was food, which jumped 1.2%, with particularly severe rises in beef and veal. So far this year, beef prices have increased at an annual rate of more than 100% and are expected to remain oppressively high for the rest of the year. The standard Administration forecast calls for inflation to moderate, but not before several months more of big price rises.

Any Teamsters settlement is all but certain to break the wage standard despite vigorous efforts by the Administration to force restraint. Last week bargaining resumed briefly only to be broken off again. When the talks first collapsed, April 1, the drivers were demanding an increase of 32% over three years. Though that would be well above the compounded guideline level of 22.5%, the Council on Wage and Price Stability (COWPS) seemed ready to exclude some benefit gains and pronounce an even 30% settlement to be within the standards.

A main sticking point is the cost of living clause. The industry has offered the drivers a boost equal to 65% of the rise in the Consumer Price Index, to be paid on an annual basis. The final payment would not be made until the fourth year and would not be counted in the three-year package. The union insists on getting the increase twice a year, with the next-to-final payment falling due in the third year. That would lift the overall settlement two percentage points above what the Government is willing to accept.

After the deadline passed, the Teamsters called selective strikes against 73 of the 500 companies involved in the negotiations. This was a union effort to flex some muscle but avoid provoking the White House into imposing the 80-day cooling-off period under the Taft-Hartley Act. To invoke the law, which would require the drivers to return to work, the President must show that a strike will endanger the nation's health or safety. The partial walkout also would have enabled the union to push for divide-and-conquer settlements with individual firms. To foil that move, trucking industry leaders called for and got a largely successful nationwide lockout of the Teamsters by the companies in the negotiations.

The effects of the strike and lockout quickly dented the operations of a wide variety of manufacturing industries. Worst off were the automakers, who stock only a few days' supply of some components. General Motors was forced to cut production and lay off 30,100 hourly workers indefinitely. Ford reduced shifts at 19 of its North American plants. Chrysler closed almost its entire U.S. operation, laying off 77,000 employees in 37 plants.

Meanwhile, the machinists' strike prompted other airlines to put on extra flights to accommodate some of the 130,000 passengers carried daily by United. The machinists' pact is supposed to be exempt from the guidelines if it stays within the bounds of the contract that the machinists signed with TWA before the guidelines were announced, which provided an average 12% annual increase in wages and benefits over three years. Citing the ravages of inflation, the machinists at United have twice rejected a package similar to the one granted by TWA. The 18,600 machinists walked out March 31. Negotiations resumed briefly last week and then were called off again.

Government efforts to keep a lid on prices are also failing. Many businessmen feel that some form of mandatory wage-price controls is inevitable, despite repeated protestations by the President, his chief inflation fighter Alfred Kahn and other Administration officials that no such move is contemplated. Thus corporations are pushing up prices earlier and higher than they ordinarily would as a hedge against being caught by controls "with their prices down." As a result, says COWPS Director Barry Bosworth, the Administration is tightening up on its price standards, which are becoming less and less voluntary.

For example, COWPS will now require all companies with annual sales of more than $250 million, including those that produce prescription drugs, cement, and electric motors, to file quarterly reports on price actions, including any price changes being considered for the future. Bosworth frankly admits that there has been plenty of mismanagement of the price standards. Yet he insists: "The answer is not to abandon the program. We've lost a lot of time, but we've got to get a better flow of information."

The best hope for the guidelines is that the economy will begin to slow from its unexpectedly extended boom, and there are signs that this is happening. After inflation, real personal income has declined at an annual rate of 6.3% so far this year. Retail sales, U.S.-made-auto sales and housing starts have also slowed.

All this could presage the mild recession that is widely expected later this year. If the guidelines fail before the decline in production begins, the only practical, short-term alternative would be an ever tougher monetary policy and higher interest rates. Money supply is already relatively tight, and interest rates are expected to go on rising into June. A continuation of this trend could lead to a recession deeper and more painful than anyone wants.

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